Unemployment Employer Audits

The Division of Unemployment Insurance performs audits in accordance with Federal requirements to ensure compliance among employers, promote an open dialogue between the division and the company, answer questions, provide helpful tips and guidance, and to help foster a healthy and successful business community within Colorado.

The majority of all audits performed each year are random, however, the U.S. Department of Labor requires that all states audit one percent of all of their employing businesses each year. The pool is all employers who are registered or performing services within the State of Colorado.

The purpose of an audit is to verify that:

Accurate wages are reported for workers

All workers are properly classified

All appropriate reports are filed

Review of Records

An audit involves an examination of records which may include Federal forms, tax returns, payroll records, profit and loss ledgers, check registers, bank statements and other documents.The Colorado Employment Security Act, Sections 8-72-107 (1) through 8-72-110, gives the division the authority to audit company records.

Classification of Workers

While the definition of employment in Colorado law is broad and inclusive, it is not limited to the common-law relationship of master and servant (as used by the Internal Revenue Service).

The two main concepts used to determine the status of a worker are, as stated in Colorado law:

Whether or not the individual is free from control and direction in the performance of the service, both under the contract for the performance of service and in fact.

Whether or not the individual is customarily engaged in an independent trade, occupation, profession, or business related to the service performed.

All circumstances are explored during the dialogue that occurs with the company during an audit. Some examples of these circumstances may include any written agreements that are in existence, the day to day relationship between the worker and the company, the actual directions given, the use of tools, advertising, type or payments and a myriad of other everyday issues. Overall, it is the totality of circumstances that is the basis of the decision.